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)

Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States and Canada. Our portfolio of solutions represent a unique set of capabilities that individually and collectively provide value to our clients. The solutions are offered at an enterprise level through the Voice of the Customer ("VoC") platform, The Governance Institute, and legacy Experience solutions

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies

Our Canadian subsidiary uses as its functional currency the local currency of the country in which it operates. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.

Revenue Recognition

January 1, 2018,

we adopted Accounting Standards Update (“ASU”)

2014

09,

Revenue from Contracts with Customers

and all related amendments (“ASC

606”

or “new revenue standard”) using the modified retrospective method for all incomplete contracts as of the date of adoption. We applied the practical expedient to reflect the total of all contract modifications occurring before

January 1, 2018

in the transaction price and performance obligations at transition rather than accounting for each modification separately. Results for reporting periods beginning on or after

January 1, 2018

are presented under ASC

606,

while prior period amounts are

not

adjusted and continue to be reported under the accounting standards in effect for the prior period. As discussed in more detail below and under “Deferred Contract Costs”, the largest impact of implementing the new revenue standard was the deferral and amortization of direct and incremental costs of obtaining contracts. In addition, there were other revisions to revenue recognition primarily related to performance obligation determinations and estimating variable consideration. We recorded a transition adjustment of approximately

$2.7

million, net of

$814,000

of tax, to the opening balance of retained earnings.

We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or

notice without penalty. See Note

for further information about our contracts with customers. We account for revenue using the following steps:

	●	Identify the contract, or contracts, with a customer
	●	Identify the performance obligations in the contract
	●	Determine the transaction price
	●	Allocate the transaction price to the identified performance obligations; and
	●	Recognize revenue when, or as, we satisfy the performance obligations.

Our revenue arrangements with a client

may

include combinations of more than

one

service offering which

may

be executed at the same time, or within close proximity of

one

another. We combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together. For contracts that contain more than

one

separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will

not

occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do

not

contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.

Our arrangements with customers consist principally of

four

different types of arrangements:

) subscription-based service agreements;

)

one

-time specified services performed at a single point in time;

) fixed, non-subscription service agreements; and

) unit-priced service agreements.

Subscription-based services -

Services that are provided under subscription-based service agreements are usually for a

twelve

month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the customer. These agreements are renewable at the option of the customer at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer as the customer receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed annually in advance but

may

also be billed on a quarterly and monthly basis.

One-time services –

These agreements typically require us to perform a specific

one

-time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.

Fixed, non-subscription services –

These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch up adjustment which could impact the amount and timing of revenue for any period.

Unit-price services –

These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount. Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but

not

invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.

Deferred Contract Costs

Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. Beginning

January 1, 2018,

with the adoption of the new revenue standard, we defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable customer contract. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from

three

five

years. The contract term was estimated by considering factors such as historical customer attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract. An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services. We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of

one

year or less. Prior to

2018,

all commissions and incentives were expensed as incurred. We recorded a transition adjustment on

January 1, 2018

as an increase to retained earnings of

$2.6

million, net of

$776,000

of tax, to reflect

$3.4

million of commissions and incentives related to contracts that began prior to

2018,

net of accumulated amortization. We deferred incremental costs of obtaining a contract of

$3.6

million and

$2.6

million in the years ended

December 31, 2019

and

2018,

respectively. Deferred contract costs, net of accumulated amortization was

$4.2

million and

$3.5

million at

December 31, 2019

and

2018,

respectively. Total amortization by expense classification for the years ended

December 31, 2019

and

2018

was as follows:

	2019		2018
	(In thousands)
Direct expenses	$	34	$	83
Selling, general and administrative expenses	$	2,874	$	2,400
Total amortization	$	2,908	$	2,483

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was

$22,000

and

$51,000

for the years

December 31, 2019

and

2018,

respectively.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. We determine the allowance based on our historical write-off experience and current economic conditions. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The following table provides the activity in the allowance for doubtful accounts for the years ended

December 31, 2019,

2018

and

2017:

	Balance at Beginning of Year		Bad Debt Expense		Write-offs, net of Recoveries		Balance at End of Year

Year Ended December 31, 2017	$	169	$	249	$	218	$	200
Year Ended December 31, 2018	$	200	$	80	$	105	$	175
Year Ended December 31, 2019	$	175	$	75	$	106	$	144

Property and Equipment

Property and equipment is stated at cost. Major expenditures to purchase property or to substantially increase useful lives of property are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income.

We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-related costs for employees who are directly associated with the internal-use software projects and external direct costs of materials and services. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and training costs are expensed as incurred. We capitalized approximately

$4.1

million and

$4.0

million of costs incurred for the development of internal-use software for the years ended

December 31, 2019

and

2018,

respectively.

We provide for depreciation and amortization of property and equipment using annual rates which are sufficient to amortize the cost of depreciable assets over their estimated useful lives. We use the straight-line method of depreciation and amortization over estimated useful lives of

three

ten

years for furniture and equipment,

three

five

years for computer equipment,

one

five

years for capitalized software, and

seven

forty

years for our office building and related improvements. Software licenses are amortized over the term of the license.

Impairment of Long-Lived Assets and Amortizing Intangible Assets

Long-lived assets, such as property and equipment and purchased intangible assets subject to depreciation or amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we

first

compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is

not

recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and

third

-party independent appraisals, as considered necessary.

significant impairments were recorded during the years ended

December 31, 2019,

2018,

2017.

Among others, management believes the following circumstances are important indicators of potential impairment of such assets and as a result

may

trigger an impairment review:

	●	Significant underperformance in comparison to historical or projected operating results;
	●	Significant changes in the manner or use of acquired assets or our overall strategy;
	●	Significant negative trends in our industry or the overall economy;
	●	A significant decline in the market price for our common stock for a sustained period; and
	●	Our market capitalization falling below the book value of our net assets.

Goodwill and Intangible Assets

Intangible assets include customer relationships, trade names, technology, and goodwill. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may

not

be recoverable. We review intangible assets with indefinite lives for impairment annually as of

October 1

and whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable.

When performing the impairment assessment, we will

first

assess qualitative factors to determine whether it is necessary to recalculate the fair value of the intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment, that it is more likely than

not

that the fair value of the indefinite-lived intangibles is less than their carrying amount, we calculate the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives exceeds their fair value, then the intangible assets are written-down to their fair values. We did

not

recognize any impairments related to indefinite-lived intangibles during

2019,

2018

2017.

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are

not

individually identified and separately recognized. All of our goodwill is allocated to our reporting units, which are the same as our operating segments. Goodwill is reviewed for impairment at least annually, as of

October 1,

and whenever events or changes in circumstances indicate that the carrying value of goodwill

may

not

be recoverable.

We review for goodwill impairment by

first

assessing qualitative factors to determine whether any impairment

may

exist. If we believe, as a result of the qualitative assessment, that it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds the carrying value, then goodwill is written down by this difference. We performed a qualitative analysis as of

October 1, 2019

and determined the fair value of each reporting unit likely significantly exceeded the carrying value.

impairments were recorded during the years ended

December 31, 2019,

2018

2017.

The carrying amount of goodwill related to our Canadian subsidiary at

December 31, 2019

was

$2.3

million. A substantial portion of the revenue earned by our Canadian subsidiary is concentrated with

one

customer. If we are unable to renew or retain our contract, which expires in

March 2021,

our goodwill associated with our Canadian subsidiary would likely be impaired.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than

not

to be realized. We use the deferral method of accounting for our investment tax credits related to state tax incentives. During the years ended

December 31, 2019,

2018

and

2017,

we recorded income tax benefits relating to these tax credits of

$24,000,

$0,

and

$4,000,

respectively. Interest and penalties related to income taxes are included in income taxes in the Statement of Income.

We recognize the effect of income tax positions only if those positions are more likely than

not

of being sustained. Recognized income tax positions are measured at the largest amount that is greater than

50%

likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Share-Based Compensation

All of our existing stock option awards and non-vested stock awards have been determined to be equity-classified awards. The compensation expense on share-based payments is recognized based on the grant-date fair value of those awards. We recognize the excess tax benefits and tax deficiencies in the income statement when options are exercised. Amounts recognized in the financial statements with respect to these plans:

	2019			2018			2017
	(In thousands)
Amounts charged against income, before income tax benefit	$	1,224		$	1,514		$	1,845
Amount of related income tax benefit		(2,081	)		(3,566	)		(2,310	)
Net (benefit) expense to net income	$	(857	)	$	(2,052	)	$	(465	)

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of

three

months or less to be cash equivalents. Cash equivalents were

$3.7

million and

$1.8

million as of

December 31, 2019,

and

2018,

respectively, consisting primarily of money market accounts. At certain times, cash equivalent balances

may

exceed federally insured limits.

Leases

We adopted Accounting Standards Update (“ASU”)

2016

02,

Leases (Topic

842

) (“Topic

842”

or the “New Leases Standard”) effective

January 1, 2019

using a modified retrospective transition and did

not

adjust prior periods. We elected practical expedients related to existing leases at transition to

not

reassess whether contracts are or contain leases, to

not

reassess lease classification, initial direct costs, or lease terms. Additionally, we elected the practical expedient to account for lease and non-lease components as a single lease component for all asset classifications. We have also made a policy election to

not

record short-term leases with a duration of

months or less on the balance sheet.

Topic

842

requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating leases. We recorded

$2.3

million of ROU assets and

$2.3

million of lease liabilities related to operating leases at the date of transition. The ROU assets recorded were net of

$43,000

of accrued liabilities and prepaid expenses representing previously deferred (prepaid) rent. There was

significant impact to the consolidated statements of income, comprehensive income, shareholders’ equity or cash flows. Accounting for finance leases is substantially unchanged.

We determine whether a lease is included in an agreement at inception. Operating lease ROU assets are included in operating lease right-of-use assets in our consolidated balance sheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long term liabilities. Certain lease arrangements

may

include options to extend or terminate the lease. We include these provisions in the ROU and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do

not

contain any residual value guarantees.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the rate of interest implicit in each lease is

not

readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information

Fair Value Measurements

Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The inputs are then classified into the following hierarchy: (

) Level

Inputs—quoted prices in active markets for identical assets and liabilities; (

) Level

Inputs—observable market-based inputs other than Level

inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are

not

active, or other inputs that are observable or can be corroborated by observable market data; (

) Level

Inputs—unobservable inputs.

The following details our financial assets within the fair value hierarchy at

December 31, 2019

and

2018:

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of December 31, 2019
Money Market Funds	$	3,662	$	--	$	--	$	3,662
Total Cash Equivalents	$	3,662	$	--	$	--	$	3,662

As of December 31, 201 8
Money Market Funds	$	1,848		--		--		1,848
Total Cash Equivalents	$	1,848	$	--	$	--	$	1,848

There were

transfers between levels during the years ended

December 31, 2019

and

2018.

Our long-term debt described in Note

is recorded at historical cost. The fair value of long-term debt is classified in Level

of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit.

The following are the carrying amount and estimated fair values of long-term debt:

	December 31, 2019		December 31, 2018
	(In thousands)
Total carrying amount of long-term debt	$	34,281	$	37,966
Estimated fair value of long-term debt	$	35,205	$	38,257

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are

not

recognized or disclosed at fair value in the financial statements on a recurring basis, which includes property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). As of

December 31, 2019

and

2018,

there was

indication of impairment related to these assets.

Commitments and

Contingencies

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. There were

outstanding claims at

December 31, 2019.

A sales tax accrual was recorded in

2019

after we became aware that a state sales tax liability was both probable and estimable as of

December 31, 2019,

due to sales taxes that should have been collected from customers in

2019

and certain previous years. As a result, we recorded an expense of

$775,000

in selling and administrative expenses and an associated liability in accrued expenses. We are working through voluntary disclosure agreements with certain states and will have procedures in place to start collecting and remitting sales tax in the

second

quarter of

2020.

State and local jurisdictions have differing rules and regulations governing sales, use, and other taxes and these rules and regulations can be complex and subject to varying interpretations that

may

change over time. As a result, we could face the possibility of tax assessment and audits, and our liability for these taxes and associated interest and penalties could exceed our original estimates. In addition, we will incur additional sales tax expense in the

first

quarter of

2020,

since we will

not

start collecting sales tax from customers until the

second

quarter of

2020.

We became self-insured for group medical and dental insurance on

January 1,

2019.

We carry excess loss coverage in the amount of

$150,000

per covered person per year for group medical insurance. We do

not

self-insure for any other types of losses, and therefore do

not

carry any additional excess loss insurance. We record a reserve for our group medical and dental insurance for all unresolved claims and for an estimate of incurred but

not

reported (“IBNR”) claims. On a quarterly basis, we adjust our accrual based on a review of our claims experience and a

third

-party actuarial IBNR analysis. As of

December 31, 2019,

our accrual related to self-insurance was

$270,000.

Earnings Per Share

Prior to the Recapitalization, net income per share of our former class A common stock and former class B common stock was computed using the

two

-class method. Basic net income per share was computed by allocating undistributed earnings to common shares and using the weighted-average number of common shares outstanding during the period.

Diluted net income per share was computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

The liquidation rights and the rights upon the consummation of an extraordinary transaction were the same for the holders of our former class A common stock and former class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of former class A common stock was equal to

one

sixth

(

1/6

) of the amount of any such dividend or other distribution payable on each share of former class B common stock. As a result, the undistributed earnings for each period were allocated based on the participation rights of the former class A and former class B common stock under our then-effective Articles of Incorporation as if the earnings for the year had been distributed.

As described in Note

we completed a Recapitalization in

April 2018,

resulting in the elimination of the class B common stock and settlement of all then-existing outstanding class B share-based awards and reclassification of all class A common stock to Common Stock. The Recapitalization was effective on

April 17, 2018.

Therefore, income was allocated between the former class A and class B stock using the

two

-class method through

April 16, 2018,

and fully allocated to the Common Stock (formerly class A) following the Recapitalization.

We had

16,221,

93,346

and

104,647

options of Common Stock (former class A shares) for the years ended

December 31, 2019,

2018

and

2017,

respectively and

1,858

options of former class B shares for the year ended

December 31, 2017,

respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

	2019			2018						2017
	Common Stock			Common Stock (formerly Class A)			Class B Common Stock			Common Stock (formerly Class A)			Class B Common Stock
	(In thousands, except per share data)
Numerator for net income per share - basic:
Net income	$	32,406		$	25,423		$	4,624		$	11,388		$	11,555
Allocation of distributed and undistributed income to unvested restricted stock shareholders		(109	)		(82	)		(18	)		(88	)		(87	)
Net income attributable to common shareholders	$	32,297		$	25,341		$	4,606		$	11,300		$	11,468
Denominator for net income per share - basic:
Weighted average common shares outstanding - basic		24,809			23,562			3,527			20,770			3,514
Net income per share - basic	$	1.30		$	1.08		$	1.31		$	0.54		$	3.26
Numerator for net income per share - diluted:
Net income attributable to common shareholders for basic computation	$	32,297		$	25,341		$	4,606		$	11,300		$	11,468
Denominator for net income per share - diluted:
Weighted average common s hares outstanding - basic		24,809			23,562			3,527			20,770			3,514
Weighted average effect of dilutive securities – stock options:		844			886			101			857			89
Denominator for diluted earnings per share – adjusted weighted average shares		25,653			24,448			3,628			21,627			3,603
Net income per share - diluted	$	1.26		$	1.04		$	1.27		$	0.52		$	3.18

Recent Accounting Pronouncements

Not

Yet Adopted

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance is effective for annual reporting periods beginning after

December 15, 2019

and interim periods within those fiscal years. We believe our adoption on

January 1, 2020

will

not

significantly impact our results of operations and financial position.

August 2018,

the FASB issued ASU

2018

15,

Intangibles-Goodwill and Other-Internal Use Software (Subtopic

350

). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance is effective for annual reporting periods beginning after

December 15, 2019

and interim periods within those fiscal years. Early adoption is permitted. We plan to adopt the guidance prospectively and believe our adoption on

January 1, 2020

will

not

significantly impact our results of operations and financial position.

December 2019,

the FASB issued ASU

2019

12,

Simplifying the Accounting for Income Taxes (Topic

740

). Among other clarifications and simplifications related to income tax accounting, this ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for fiscal years beginning after

December 15, 2020

and interim periods within those fiscal years. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. We are currently in the process of further evaluating the impact that this new guidance will have on our consolidated financial statements.